Memorandum. General Overview Employment Law/Spain

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1 Memorandum General Overview Employment Law/Spain

2 1. General As is the case in other European countries, Spanish labour law is very comprehensive and provides significant protection for employees. The labour law regulates individual and collective relationships between employees and employers, the scope of which extends to other related areas such as Social Security, health and safety at work, special employment relationships and procedural law. Key Points Non-EU citizens must obtain a work permit. In principle, employment contracts are presumed to be for an indefinite term. However, there are a limited number of fixed-term employment contracts. Minimum working conditions are principally set out in the Workers Statute and applicable collective agreements. Employment contracts are automatically transferred with the business to the new employer. Employees rights and obligations are also transferred. Termination can be based on objective grounds. Dismissals are void if the termination is discriminatory or involves protected employees. 1. Brief Introduction As is the case in other European countries, Spanish Labour Law ( the Labour Law ) is very comprehensive and quite protective of employees. The Labour Law regulates the individual and collective relationships between employees and employers, the scope of which extends to other related areas such as Social Security, work place safety, special employment relationships and procedural law. The economic crisis of 2008 revealed the unsustainability of the Spanish labor model. The labor legislation was updated in 2012 to adequate itself in a time of crisis within the labor market. Royal Decree-law 3/2012 of 12 February, on urgent measures to reform the labor market, significantly modifies the institutional framework of Spanish labor relations. 2. Legal Framework The main sources of Spanish employment law are: - The Spanish Constitution dated December 17, Royal Decree 1/1995 on Statute of Workers. - Royal Decree-law 3/2012 of 12 February, on urgent measures to reform the labor market. - Law of 6 July 2012 on urgent measures to reform the labor market. - Royal Decree-law 16/2013, on measures to improve stable hiring. - Law 5/2000 on Labour Infractions and Sanctions. - Law 31/1995 on Work Risk Prevention. 1

3 - Law 3/2007 on Equality Between Men and Women - Law 1/1994 on Social Security. - Applicable Company Collective Agreement - Employment Contract. - Habits and Common Usage. - General Principles of Law. 3. New or Expected Developments/Recent Amendments to the Law Law of 6 July 2012 on urgent measures to reform the labor market has introduced the following changes: Elimination of accrued salaries in case of unfair dismissal (payment of wages to the dismissed employee, from the effective date of dismissal until the notification of the court ruling). There are exceptions. The compensation for unfair dismissal has been reduced from 45 to 33 days per year of service and the maximum limit from 42 to 24 months, notwithstanding the applicable legislation to employment agreements in force before 12 February 2012; An administrative authorization is no longer required for collective dismissals. «Express dismissals» have been eliminated. The unfairness of a dismissal cannot be acknowledged at the time of handing the letter of dismissal. The Spanish Social Jurisdiction does not require judicial taxes to access the Labor Courts of Justice, in first instance. A Law regulating judicial taxes approved in November 2012 inserted a new tax that affects the Social Jurisdiction when appealing a Court Ruling, and has been highly criticized, since the main reason to avoid judicial taxes is also to avoid causing defencelessness to workers or parties with limited means. The legislation to part time contracts has also been reviewed, and new flexibility measures have been implemented to allow a better use of work time for the employer, as well as more control by the labor inspection in case of fraud. 2. Employment Contracts 1. Minimum Requirements Generally, Spanish Labour Legislation allows for freedom of form when making a contract. Employment contracts can be verbal or in writing. However, during the term of a verbal contract, either of the parties may require that the verbal contract be reduced to writing. 2

4 As an exception to the freedom of form, certain employment contracts must be in writing, including, but not limited to, temporary employment contracts, contracts involving special labour relations (such as those concerning lawyers, top managers or commercial representatives) and part-time contracts. Notwithstanding the general freedom of form principle, when an employment contract s duration period is greater than four weeks, the employer, within two months from the commencement of the employment relationship, must provide the employee the following information in writing: a) Identification of the parties to the employment b) Date of commencement and estimation of the employment duration for temporary contracts c) Place where services are going to be rendered d) Professional group or category e) Base salary as well as other compensation or benefits, if any. f) Total working hours g) Total number of holidays h) Notice periods i) Applicable collective agreement 2. Fixed/Unlimited Time Contracts In principle, employment contracts are presumed to be for an indefinite term. There are, however, a limited number of definite-term employment agreements. If the employee continues to work past the original term of the temporary agreement, the relationship becomes indefinite in time and the employee becomes entitled to the standard severance upon termination. 3. Trial Period In the event that no special provision is contained in an applicable collective bargaining agreement, notice periods cannot exceed six months for workers with an academic degree and for any other employees. However, the contract for entrepreneurs has established a trial period of one year. 4. Notice Period The Labour Law requires that a party seeking to terminate an employment agreement provide the other party to the agreement with a minimum of fifteen (15) days notice prior to termination. This rule does not apply to interim contracts. The parties in the contract may agree upon longer notice periods. 3

5 3. AUTHORISATIONS FOR FOREIGN EMPLOYEES 1. Requirement for Foreign Employees to Work Foreign employees from outside the European community, including self-employed individuals, must obtain an administrative authorization, or work permit, to work in Spain. The work permit may be requested at the Immigration Bureau. 4. Working Conditions 1. Minimum Working Conditions Employers and employees are free to negotiate the terms and conditions of their employment relationship. However, employees have various minimum rights under the law, regardless of any contrary language in their employment agreement. These minimum working conditions are set forth in the Workers Statute and the applicable Collective Agreement, among others. 2. Salary An employee s salary includes all amounts received by an employee in compensation for services rendered. Salary can be monetary or in kind, but the latter cannot be higher than 30% of the total amount received by the employee. 3. Maximum Working Week The maximum working week is forty (40) hours calculated as an average over a yearly period. By collective agreement, or failing that by agreement between the employer and employee representatives, may establish the irregular distribution of working time throughout the year. In the absence of agreement, the company may distribute unevenly throughout the year, 10 percent of the workday. This distribution shall always respect the minimum daily and weekly rest periods. 4. Overtime Overtime cannot exceed eighty (80) hours per year. 5. Holidays Employees are entitled to a minimum of thirty (30) days of paid vacation per year. This can be improved by contract or collective agreement. In addition, there are fourteen (14) public nonworking days per year, which may differ slightly by region. 4

6 5. Rights of Employees in Case of a Transfer of Undertaking 1. Employees Rights Employees rights and obligations are subrogated to the new shareholder and maintained intact. This includes special benefits and retirement compensation that employees may be entitled to. 2. Requirements for Take Over Party The Workers Statute requires formal notice to employees in the event of transfer of undertakings, including date or proposed date of the transfer, reasons for the transfer, legal, economic and social implications for the employees and any measures envisaged in relation to the employees. 6. Termination of Employment Contracts 1. Grounds for Termination (List) 1. Mutual consent of the parties. 2. Grounds established in the contract. 3. Expiration of the contract term or end of the specific job. 4. Employee resignation. 5. Death or permanent illness. 6. Retirement of employee. 7. Employer s death, retirement or permanent illness. 8. Force majeure that makes it impossible to continue rendering services. 9. Collective dismissal based on objective grounds. 10. Employee s voluntary departure based on breach of contract by employer. 11. Dismissal of employee. 12. Employee s desire to cease work as a result of that she suffered gender violence. 2. Collective Dismissals Terminations based on economic, technical organizational or productivity grounds are deemed collective when: a. Ten (10) workers are affected in companies with less than one hundred (100) workers. b. At least 10% of the employees are affected within a period of ninety (90) days in companies that have between one hundred (100) and three hundred (300) workers. c. Thirty (30) workers in companies with three hundred (300) or more workers. 5

7 3. Individual Dismissals Termination can be based on objective grounds or disciplinary grounds. A. Reasons for objective dismissal: a) Worker s incompetence. b) Worker s inability to adapt to technical change. c) Layoffs based on economic, technical, organizational and or productivity grounds. d) Lack of attendance to work. Given that labour courts are so restrictive in accepting dismissal based on business grounds, this procedure is very seldom used, unless the grounds are absolutely clear (e.g., bankruptcy). B. Reasons for disciplinary dismissal: a) Repeated and unjustified tardiness or lack of attendance to work. b) Lack of discipline or insubordination. c) Verbal or physical offence towards the employer, other people working in the company or residing family. d) Contravention of contractual good faith and misuse of trust. e) Continuous and voluntary decrease of the worker s normal or agreed performance. f) Intoxication due to alcohol or drugs when causing a negative effect in work. g) Harassment based on: race, religion, birth, gender, age, disability, opinion, social condition, and sexual orientation. 4. Severance Payment Objective dismissal: a tax-free payment in the amount of twenty (20) days salary per year of service, up to twelve (12) months salary. If the dismissal is not correctly proven in Court, the employee will be entitled to the severance explained below for unfair dismissals. Disciplinary dismissal: if the dismissal is proven in Court the employee is entitled to no severance. If the dismissal in deemed unfair by the Judge or acknowledged as unfair by the Company before the Conciliation Chamber or the Judge, the relevant tax-free severance is thirty three (33) days salary per year of service up to twenty four (24) months pay. However, this calculation must respect the following: (i) (ii) For the period of seniority rendered before (day the labor reform was approved) the employee is entitled to the indemnity arisen from calculation based on 45 days per year of work with a cap of 42 months. For the seniority as from until termination date, the employee will be entitled to compensation based on 33 days per year of work with a cap of 24 months. The sum of both amounts will be the legally established compensation for the employee. 6

8 The maximum cap is now 720 days. However, when the calculation to determine the severance for dismissal before 12 February 2012 results in a number of days greater than 720, the cap will then be 42 months. Parties may agree to a lower or higher compensation. Higher compensations that exceed the ones described above will be subject to tax and social security contributions (in case of mutually agreed terminations), in the amounts described below. Calculation formula and basis for calculation Severance compensation is calculated under two criteria: Seniority and daily salary. In case of objective or unfair disciplinary dismissal the severance will be calculated by multiplying the seniority by the daily salary and the days (20 in case of objective dismissal/ 33 in case of unfair dismissal). The daily salary is calculated taking into consideration the twelve (12) last payments, and the company shall include all salary concepts. This also includes salary in kind and extra-hours. Only extra-salary concepts should be excluded. Therefore, bonus, incentives and irregular payments are included. Stock Options will be calculated for the severance under certain circumstances: In case of voluntary leave or disciplinary dismissal declared fair, the employee will lose the right to include the stock options in the severance for dismissal. The Supreme Court has said that in the event the dismissal was declared unfair and was carried out a few months before options were able to be exercised, they will be included in the severance for dismissal. The same will occur in the event of death, disability and retirement, in which either the employee or their heirs will be able to claim these. In case of unfair dismissal, the employee will be entitled to exercise the right to stock options after the contract is terminated even if a permanence clause has been signed. 5. Options for Employee Workers can accept or challenge the termination decision within twenty (20) days of notification. 6. Unfair Dismissal Among other reasons, dismissals will be deemed unfair if the grounds are not serious enough or not sufficiently evidenced by the employer. 7. Void Dismissal Dismissals are void, if the termination is discriminatory or involves protected employees (e.g., on maternity leave, employees representative), in which case the employee is entitled 7

9 to reinstatement. An infringement of the employee s fundamental rights constitutes a void dismissal. 7. Trade Unions and Employers Associations 1. Brief Description of Employees and Employers Organizations The Spanish Constitution grants Unions the authority to promote and defend the workers economic interests. It also empowers them to represent workers in collective bargaining and to participate in the preliminary mandatory conciliation steps before disputes can be presented to governmental conciliation agencies. 2. Rights and Importance of Trade Unions Freedom of association and representation are fundamental rights in the Spanish Constitution. All employees (except senior executives, i.e., general managers) are represented by the elected representatives. There is no distinction between blue and white collar representatives. It is for the employees to start the process of elections, and thus, the employer has no obligation to promote them. Freedom of association and representation include the following rights: - Right to associate freely with any of the unions. This is a right, not an obligation. - Right to found unions without previous authorization, (both nationally and internationally). - Right to choose employee representatives. - Right to participate in union activities. - Right to keep ones association preferences private and not communicate them to the employer. 8. Employee Representation 1. Types of Representations There are two types of employees representation: Individual delegates and works Councils. Individual delegates represent workers in companies or worksites having up to fifty (50) workers. Where the company or the worksite has more than fifty (50) workers, workers will appoint a works council formed by the following number of members: 8

10 2. Number of Representatives 50 to100 workers: 5 members 101 to 250 workers: 9 members 251 to 500 workers: 13 members 501 to 750 workers: 17 members 751 to 1000 workers: 21 members More than workers: 2 members for every 1000 workers up to 75 members. 3. Nomination of Representatives The workers choose representatives when elections are called. The vote is free and secret. 4. Tasks and Obligations of Representatives Works councils and delegates are entitled to preside and convoke assemblies, take legal and administrative action and raise legal disputes. They are also entitled to overview and control the company s fulfilment of its obligations regarding safety and security any other regulations in force. Works councils and delegates are entitled to receive information on the company s performance, the market and particularly on employment. They are entitled to consultation in situations affecting a number of employees exceeding the thresholds (around 10% of workforce), namely relocation of a worksite, change of employment terms, collective redundancy or mass layoffs, mergers, etc. 5. Employee Representation in Management Due to the principle of mutual trust between the employer and senior executives, the latter cannot be eligible nor participate as electors in the employees representation for they (senior executives) cannot defend or represent opposite interests to those of the company. 9. Social Security 1. Legal Framework The legal framework for social security is derived primarily from the Social Security Act 1/ Contributions In Spain, the Social Security s national insurance contributions cover: - Common contingencies, these contributions cover the situations included in the Social Security s general regime. 9

11 - Professional contingencies, covers expenses resulting from labour accidents and occupational diseases. - Overtime - Other concepts such as unemployment, training or the Wage Guarantee Fund. 3. Insurances The Social Security offers public medical care to all affiliated workers. 4. Maternity Leave Maternity leave lasts sixteen (16) uninterrupted weeks. The mother must take six (6) of these full-time weeks right after birth. The remaining ten (10) can be exchanged for twenty (20) weeks of part time work if the employee reaches an agreement with the employer. 5. Pension Retirement pensions are included in all Social Security regimes and are for life. The conditions to obtain a pension are: - Having turned sixty-five (65) years of age (there are exceptions - it could gradually change to 65 until 67 years old if it attests 38,5 of contribution). - Having paid national insurance contributions for a minimum or fifteen (15) years. At least two years of contributions must have taken place within the fifteen (15) years prior to retirement. 10

12 Bufete Suárez de Vivero L&E Global Spain Bufete Suárez de Vivero is a leading law firm in Spain specialised in employment law, employee benefits, pensions and social security. Since its origin in 1975, it has focused on offering its clients a wide range of legal services specializing mainly on negotiation, litigation and company restructuring and other non-juridical areas closely related to the Labour aspects of a Company, such as economical and organizational engineering. The firm s Partners are recognized by legal research directories such Chambers and Partners, Legal 500 and The International Who s Who of Management Labour & Employment Lawyers. This memorandum has been provided by: Bufete Suárez de Vivero Torre Inbisa, Planta 15-D Plaza Europa , Hospitalet de Llobregat Barcelona, Spain P

13 Contact Us For more information about L&E Global, or an initial consultation, please contact one of our member firms or our corporate office. We look forward to speaking with you. L&E GLOBAL Avenue Louise 221 B-1050, Brussels Belgium Stephan Swinkels, Executive Director This publication may not deal with every topic within its scope nor cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice with regard to any specific case. Nothing stated in this document should be treated as an authoritative statement of the law on any particular aspect or in any specific case. Action should not be taken on this document alone. For specific advice on any particular feature you should seek advice from the L&E Global representative stated in this memorandum. This document is based on the law as of April

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